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RBC Says Hungary Rate Move Was Likely Prompted by ‘Interference’

Hungary’s unexpected increase of the benchmark interest rate to 5.5 percent from a record-low 5.25 percent may have been prompted by government plans to interfere in monetary policy, said Nigel Rendell, a senior emerging-market strategist at RBC Capital in London.

He commented in an e-mailed note today.

On the decision to raise interest rates:

“While there are increased inflationary risks from various administered price increases, which no doubt warrant a tighter policy stance, the timing of today’s move may well have been influenced by the element of ‘government interference’ in central bank matters."

Central bank President Andras "Simor left little doubt that the central bank is now in tightening mode and in this respect, further rate rises should be expected during the coming months. Given the change in the Monetary Council in March, current policy makers may well take the view that they have further work to do before they are potentially replaced with ‘government appointees’ in March.”

On changing the inflation target:

“Concerned about price pressures in the future, Simor criticized the government for suggesting that the inflation target should be raised to 3.5%, fiercely arguing that there is no economic reason for any change."

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